Supportive forecasts, the prospect of limited demand impacts from Hurricane Dorian and strength in the spot market all aided in a post-holiday natural gas futures rally Tuesday. The October Nymex futures contract climbed 7.3 cents to settle at $2.358/MMBtu, while November settled at $2.397, also up 7.3 cents.
Day-ahead prices gained across most regions, especially along the West Coast, where heat and maintenance restrictions had Southern California points trading at a premium; the NGI Spot Gas National Avg. rose 17.0 cents to $2.135/MMBtu.
Futures began to rally early in the day and never looked back.
Bespoke Weather Services viewed the early-week rally as “thanks mostly to strong cash prices, but with some support from a weather pattern that finally moved hotter, with heat expanding out of the West and into parts of the central and eastern United States.
“...Given no improvement in fundamental balances along with the spread movement, we are wary about the risk of some pulling back in the near term, but that will be difficult” if cash prices continue to show strength as they did Tuesday, Bespoke said. “If tighter balances can be confirmed, some further longer term upside risks exist as we head toward the start of autumn.”
The natural gas gains came as traders monitored Dorian’s track near the East Coast Tuesday. The storm battered the Bahamas over the Labor Day holiday to catastrophic effect, and those with interests in the Lower 48 were left playing a waiting game to see how close Dorian would come to the U.S. mainland.
The National Hurricane Center (NHC) located Dorian 105 miles east of Fort Pierce, FL, as of 2 p.m. ET Tuesday. The storm still carried maximum sustained winds of 110 mph.
“Dorian is moving toward the northwest near 5 mph, and a slightly faster motion toward the northwest or north-northwest” was expected later Tuesday, NHC said. “A turn toward the north is forecast by Wednesday evening, followed by a turn toward the north-northeast Thursday morning.”
On the forecast track, the storm was expected to “move dangerously close” to Florida’s eastern coast late Tuesday through Wednesday evening and “very near the Georgia and South Carolina coasts Wednesday night and Thursday, and near or over the North Carolina coast late Thursday and Thursday night.”
With Dorian looming, Kinder Morgan Inc. had temporarily shuttered its Elba Island liquefied natural gas (LNG) terminal on the Georgia coast.
“We continue to monitor Hurricane Dorian’s progress and activate our hurricane preparedness plans as needed,” spokesperson Katherine Hill said. “At this time, the Elba Island Liquefaction facility has been shut down due to state evacuation orders. We plan to resume operations once the storm has passed.”
Dorian has the potential to deliver a short-term “demand shock” for natural gas, but any demand impact would likely prove “relatively insignificant” from a macro perspective, analysts with Tudor, Pickering, Holt & Co. (TPH) said.
“Average September gas demand for power generation in Florida is about 4 Bcf/d, with an incremental 0.3 Bcf/d from the industrial sector, putting short-term demand impacts within the range of normal weather-related fluctuations and unlikely to have any significant implications to the broader macro gas market,” the TPH team said. “The latest data shows power generation demand in the Southeast region, which includes Florida, is down about 1 Bcf/d over the past three days, which may be related to hurricane preparations.”
Bespoke similarly observed that “Hurricane Dorian could still make a landfall in North Carolina but is not going to destroy as much demand as what we felt would occur previously.”
Meanwhile, as of Tuesday pipeline exports to Mexico had yet to show a notable increase following the recent resolution of a contract dispute between Mexican utility Comision Federal de Electricidad (aka CFE) and three pipeline companies, according to Genscape Inc.
“There has not yet been an indication of a ramp up in exports to Mexico via the new Sur de Texas-Tuxpan pipeline,” Genscape senior natural gas analyst Rick Margolin said. “...With the line already packed and tested, startup is expected to be imminent.”
Elsewhere on the export front, Freeport LNG shipped its first commissioning cargo for Train 1 on Tuesday from its liquefaction facility on Quintana Island in Texas. About 150,000 cubic meters were loaded aboard the LNG Jurojin, according to Freeport.
“This first cargo loading is another significant step that gets us one step closer toward our start of commercial operations, which is anticipated later this month,” Freeport CEO Michael Smith said. He said it “took less than 45 days to load our first cargo since gas was first introduced to our liquefaction facilities.” The second train also is advancing, with an in-service date set for January, while the third train is set to begin service next May.
Total deliveries to U.S. LNG terminals have risen above 6.5 Bcf/d, according to Genscape. Feed gas deliveries to Freeport had ramped up to 300 MMcf/d by Aug. 28.
Recent upticks in feed gas deliveries to Freeport “combined with the winding down of maintenance at Sabine Pass and Cameron to lift total U.S. feed gas deliveries to a record high 6.6 Bcf/d,” Margolin said. U.S. feed gas deliveries have averaged 6.28 Bcf/d over the past 10 days.
LNG export bulls received more good news to start the holiday-shortened work week as Cheniere Energy Inc. announced that it has achieved “substantial completion” of Train 2 at its Corpus Christi LNG terminal.
The new capacity on the second train is slated for first commercial delivery next May, when sales and purchase agreements with Électricité de France SA, Iberdrola SA, Naturgy Energy Group SA, PT Pertamina (Persero), and Woodside Energy Trading Singapore Pte Ltd. are set to go into effect, Cheniere said.
A hot forecast saw California lead on a day of broad gains as the cash market returned from the three-day holiday. With maintenance-related restrictions also helping put upward pressure on prices in the region, SoCal Citygate surged $1.015 to average $4.165, while PG&E Citygate jumped 30.0 cents to $3.000. Further north, Malin shed 10.5 cents to $1.970.
This week, maintenance on the Pacific Gas & Electric (PG&E), Southern California Gas (SoCalGas) and Mojave pipeline systems could disrupt imports into California, according to Genscape analyst Joe Bernardi.
PG&E is expected to limit flows on its Redwood Path to 1,500 MMcf/d on Wednesday and to 1,860 MMcf/d on Thursday, restricting a route that made up around 1,950 MMcf/d of supply for PG&E during the month of August, Bernardi said.
Down in Southern California, “SoCalGas is performing in-line inspections on Line 4000, one of the import lines that has had reduced flow for months along with L235-2 and L3000,” the analyst said.
Through Saturday (Sept. 7), the maintenance is expected to reduce capacity at the Needles/Topock Area Zone from 268 MMcf/d to 198 MMcf/d, versus an average of 283 MMcf/d over the past month.
“Reroutes will be needed due to the other impact from this maintenance, which is reducing the two Topock points -- included in the Needles/Topock Area Zone totals -- to zero,” Bernardi said. “They have contributed an average of 148 MMcf/d in the past month, or 52% of the area zone’s volumes. Those lost Topock volumes will need to be made up for via increased receipts from Transwestern at Needles.”
As for the Mojave Pipeline, starting Wednesday, planned maintenance is expected to cut Segment 3000 flows by about 65 MMcf/d versus the 30-day average, the analyst said.
Elsewhere, prices rallied throughout the Northeast and Midwest despite forecasts calling for generally mild temperatures in those regions in the days ahead.
“The overall theme this week is comfortable conditions across the Midwest to the Northeast with highs of upper 60s to 80s for relatively light demand,” NatGasWeather said. “However, it will be hot across the western and southern U.S. with highs of upper 80s to 100s, hottest over California and the Southwest for strong demand.”
Transco Zone 6 NY rallied 40.0 cents on the day but failed to crack the $2 mark, finishing at $1.975. Chicago Citygate picked up 10.5 cents to $2.095. Points upstream in Appalachia also surged. Dominion South jumped 35.0 cents to $1.835.
Gains in Texas and the Gulf Coast were also robust Tuesday, except in the constrained Permian producing region. Houston Ship Channel added 12.5 cents to $2.310, while Henry Hub added 6.0 cents to $2.345.